Earnings Dynamics Have Changed With Biggest Reports Ahead
Semiconductor weakness lifted the hyperscalers again while the market waits on the Fed.
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I wrote on Monday morning about the poor reactions to good earnings reports last week and whether that reset expectations enough to change how the week’s reports get received. Monday did not answer that question, but the action suggests some of the dynamics have shifted.
The session was tedious. The Russell 2000 (IWM) gained 0.64% while the Nasdaq 100 (QQQ) slipped 0.31%. Semiconductors were the weak spot with Nvidia (NVDA), Micron (MU) and Advanced Micro Devices (AMD) all under pressure, while the money went into the mega caps. Apple (AAPL), Alphabet (GOOGL) and Microsoft (MSFT) all acted well.
One interesting piece of news on Monday is that Morgan Stanley warned the memory boom is “approaching an inflection point” with contract chip prices expected to peak in late 2026. That is what hit the chip sector and helped the hyperscalers to bounce. Chip prices will remain high for a while but talk about a top in pricing could help juice the market.
Where Bearishness May Have Gone Too Far
That Alphabet strength is worth some contemplation. This is a stock that fell into a bear market four days ago on capex fears and closed under its 200-day moving average for the first time since June. On Monday, it found buyers and was back over the 200-day MA. One session does not make a turn, but a name that was left for dead last week attracting bids ahead of the biggest reports of the quarter indicates the selling may have gotten ahead of itself.
The same logic applies more broadly. When good reports get sold as consistently as they were last week, the market eventually overshoots. Positions get cleared out, the momentum crowd steps aside, and the stocks that were punished for reasons that had nothing to do with their businesses start to look interesting to buyers who were not there a week ago.
Real Test Is Wednesday and Thursday
None of this is confirmed until the reports hit. Microsoft and Meta Platforms (META) report Wednesday, the same day the Fed decides on interest rates. Apple and Amazon (AMZN) follow on Thursday. If those reports land on reset expectations and the reactions are better than what Alphabet received last week, the repair process gets underway. If good news gets sold again, the repricing is not finished and we have more work to do on the downside.
The AI sector is still chaotic and leadership is still missing. I am not going to pretend a dull Monday resolved anything but the chip news is something we need to watch.
Game Plan
I made no significant moves on Monday. There is not much opportunity in this action and forcing trades in a market like this is how you end up with capital tied up while the actual opportunity develops elsewhere.
The charts I want are still developing and my list is ready. The biotechnology names continue to act reasonably well and I will keep adding on the right action. Beyond that, this is a waiting game until the reports and the Fed give us something to react to.
If expectations have been reset, the setups will improve quickly once the news is out. That is what I am positioned for.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
